FTC slaps fines on Kakao amid web novel copyright dispute

The anti-trust authority on Sunday disclose its decision to impose a corrective order and a fine of 540 million won ($404,000) on Kakao Entertainment Co. [Photo by Yonhap]

Kakao Corp., a major player in the domestic web novel market alongside Naver Corp., is facing Fair Trade Commission (FTC) sanctions for its practice of demanding writers hand over the adaptation rights to their award-winning content as they are adapted into films, among other processes. This is the first time the FTC has taken action against a company over the copyright of contest-submitted works.

The anti-trust authority on Sunday disclosed its decision to impose a corrective order and a fine of 540 million won ($404,000) on Kakao Entertainment Co., a web novel platform under Kakao. This action was taken due to Kakao‘s alleged violation of the Fair Trade Act by exploiting its dominant position in the industry to curtail authors’ rights by creating derivative works based on their content that won awards in the company’s web novel competitions.

Adaptation rights encompass the ability to create derivative works based on preexisting content in various forms, such as webtoons, dramas, and movies. In this case, Kakao Entertainment is accused of leveraging its market dominance to restrict writers from exercising their right to have their works adapted into dramas and movies. In response, the company stated its intention to contest the FTC’s decision through an administrative lawsuit.

In contrast to webtoons, web novels can be easily adapted into a range of content, including webtoons, dramas, and movies, as they are text-based content, and this is why the market has witnessed significant growth, with its value surged from 20 billion won in 2014 to 600 billion won in 2020. The popular series “Reborn Rich” (2022) was based on a Naver web novel, for example.

According to the FTC, Kakao Entertainment held five web novel contests between 2018 and 2020. The contest terms stipulated that “the rights of adaptations from winning entries belongs to the Company,” and contest applicants were required to sign these terms and conditions.

Kakao Entertainment entered into agreements with 28 awardees in which it held the exclusive adaptation rights. In its agreements with seven of these writers, the company even prevents them from negotiating contracts with third-party platforms offering better terms and conditions than those offered by Kakao Entertainment.

The FTC believed that the terms imposed by Kakao Entertainment hindered writers from exercising their adaptation rights and restricted them from choosing alternative partners.

With Kakao Entertainment insisting it shared the revenue generated from adaptations with the writers, some industry insiders question whether it is justifiable to criticize the contracts that writers voluntarily signed.

Kakao has strongly contested the authority’s decision and also emphasized its fair treatment of creators within the domestic creative ecosystem, while asserting that there have been no instances of creators being unfairly deprived of their rights to create derivative works.